, / 326 0

Homeownership Gap Between Millennials & Boomers in the U.S.

SHARE
Homeownership Gap Between Millennials & Boomers in the U.S.
3 min. read
Homeownership Gap Between Millennials & Boomers in the U.S.

Image: VGstockstudio / Shutterstock.com

Today, Millennials have a smaller share of the real estate market than Boomers did when they were their age. So, faced with affordability issues and a shortage of starter homes, Millennials are taking a different path toward homeownership.

Buying a home as a young adult today comes with different challenges than it did way back in the days. According to a recent report by The Economist, 31-year-old Millennials own 4% of the country’s real estate by value. Conversely, in 1990, Baby Boomers with a median age of 35 owned 32% of real estate by value.

While there is time for the younger generation to narrow the gap by the time they are 35, it’s unlikely that Millennials will reach 20% of the United States real estate market in four years.

Affordability Issues

With skyrocketing home prices, Millennials find it difficult to save for a property. In fact, first-time homebuyers pay 39% more now than they did 40 years ago. Moreover, because the median price of a home in America’s largest cities is well beyond the average salary, some Millennials are looking for more affordable places near major metros where they can build their own live-work-play neighborhoods. Others prefer renting until they can afford the right home.

Furthermore, according to The Philadelphia Inquirer, student loan debt has increased in recent decades. In particular, between 1989 and 2016, student loan debt for households owned by someone younger than 35 jumped from 17% to 45%, and the value increased from $5,600 to $18,500. Overall, the median debt for households under age 35 during the same period rose from $21,000 to $39,000.

Shortage of Starter Homes

Another factor causing this gap is the shortage of starter homes and rising demand as more Millennials enter the market. In fact, Realtor.com reported that most newly built homes in 2019 were upper-tier projects with price tags of more than $500,000 – thus making conditions more difficult for first-time homebuyers.

However, $13.5 trillion in housing inventory is projected to hit the market in the coming years as Baby Boomers age or look to downsize. Specifically, between 2017 and 2027, 9 million homes are expected to enter the market. Nevertheless, Millennials may not be able to afford them or may not even be interested in them. That’s because some of these homes are located far from desirable metros, while others are too large for Millennials who prefer smaller and more modern homes.

Bridging the Gap with Inheritances

Despite a wide homeownership gap between the two generations, Millennials might make up some of it through inheritances. Jenny Schuetz, a housing policy expert at the Brookings Institution, said in The Philadelphia Inquirer:

“Millennials whose parents are sitting on lots of housing wealth will have an easier time paying for college or coming up with a down payment — even if they don’t inherit for a while, they have a family safety net.”

However, it is unclear why the share of housing wealth belonging to Millennials is falling; in 2016, it reached its highest value at 7.5%, but it has been declining ever since. On the other hand, the share of housing wealth accumulated by Baby Boomers increased 5% since 2016. Schuetz believes the reason behind this could be that real estate owned by Boomers is appreciating faster than that owned by the younger generation.

Despite wanting to buy a home, affordability issues and a lack of starter homes are causing Millennials to wait on the sidelines. It remains to be seen how conditions will shift in the coming year.

Leave A Reply

Your email address will not be published.